Ernst & Young LLP

Payroll year-end checklist for 2016November 2016

ii | Payroll year-end checklist for 2016

1November 2016 |

It is time to consider all the tasks necessary to successfully close 2016 and open 2017.

As a result of the change in the federal Form W-2 filing due date to January 31, you will find numerous date changes in the year-end checklist relating to federal and state wage and tax statements. Be certain to carefully consider this year the potential for an increase in Forms W-2c since you will no longer have additional time to incorporate changes employees bring to your attention before filing them with many taxing authorities.

Ernst & Young LLP’s payroll year-end checklist explores these matters and more while providing you with information resources to support you in your year-end planning and compliance activities.

What’s included

• Ernst & Young LLP’s sample 2016 payroll year-end checklist

• Table 1: 2017 federal holidays

• Filing electronically for 2016

• Table 2: Federal electronic filing due dates for 2016

• Table 3: Special wage payments from A to Z — sample list

• Table 4: State Form W-2 filing method requirements

• Table 5: State unemployment insurance filing method requirements

• Year-end employment tax reporting compliance

Ernst & Young LLP’s 2016 payroll year-end checklist

For all of our payroll year-end essentials, visit us at:

http://www.ey.com/US/en/Services/Tax/State-and-Local-Tax/Employment-tax-year-end-planning-essentials---Year-end-checklist

or use the search term “EY year-end checklist”

2 | Payroll year-end checklist for 2016

We have created a sample checklist of the top 30 payroll and employment tax activities for year-end 2016. Columns are included for inserting your own deadlines and the date you completed the tasks. Keep in mind that this is not a comprehensive list. Each business is unique in its payroll processes. Make a careful inventory of your own requirements and augment this checklist as necessary.

Top 30 Payroll year-end tasks for 2016 Suggested deadline Your deadline Completed?

1 Order Forms W-2 for 2016. If purchasing Forms W-2 from a forms supplier, order and inspect the incoming stock. For software packages used in preparing Forms W-2, request the dated approval notice that the software provider obtained from the Social Security Administration (SSA).

November 15, 2016

2 Form W-4 verification. Ask that employees review their name, address, Social Security Number and Form W-4 and confirm that their federal, state and local income tax withholding elections are correct for 2017.

December 1, 2016

3 2016 Forms W-4 claiming exemption. Run a report of all employees claiming exemption from federal income tax withholding on Form W-4. If no 2017 Form W-4 is filed, withhold at single and zero exemptions beginning on February 16, 2017. (Many employers send notifications to employees when they are required to file a new Form W-4. Such notices should be sent to employees no later than January 31, 2016.) Check state and local Form W-4 requirements, and repeat the same steps for state and local income taxing authorities where applicable.For more about the federal and state Form W-4 requirements, read our special report.

January 31, 2016; February 16, 2017

4 Payroll system tax configuration review. Verify taxability configuration tables for all jurisdictions for 2016 and 2017.• Marriage equality. One significant change last year that affects

many employees, and that may be retroactive, was the state and local taxability of same-gender spousal benefits. In the second of two landmark decisions on same-gender marriage, the U.S. Supreme Court ruled on June 26, 2015, that the 14th Amendment requires all states to license marriage between two people of the same gender and recognize same-gender marriages lawfully licensed and performed in another state. (Obergefell v. US, No. 14–556, June 26, 2015.)Some employers have yet to adequately adjust their state tax treatment of same-gender partner benefits to reflect last year’s changes. Now is a good time to confirm compliance.Read about the impact on state and local taxability of same-gender spousal and partner benefits here.

November 2016– January 2017

Ernst & Young LLP’s sample 2016 payroll year-end checklist

3November 2016 |

Top 30 Payroll year-end tasks for 2016 Suggested deadline Your deadline Completed?

• Transit benefits. Last year, Congress passed legislation that permanently gives parity to the monthly tax-free limit for transit passes and parking, with the tax-free limit for both set at $255 for 2016. Confirm that you properly incorporated this change for federal as well as state taxing jurisdictions that follow the Internal Revenue Code.Read more about the changes Congress made last year to transportation fringe benefits in our special report.

• Wellness benefits. Confirm that you are giving the proper tax treatment to benefits provided under wellness plans. For our analysis of recent IRS guidance, go here.

• Third-party sick pay. Your insurance provider is required to send you an annual statement of payments made and taxes withheld from disability pay in 2016 no later than January 17, 2017. You are likely required to file Forms W-2 with the SSA and provide copies to employees.For more information on third-party sick pay, read our special report here.

January 17, 2017

• Other fringe benefits. Note that a few states are not “coupled” with the federal Internal Revenue Code for specific fringe benefits. For instance, a number of states do not mirror the IRS monthly tax-free limit for transit benefits of $255 per month in 2016.For state details on the state treatment of fringe benefits for income tax and unemployment insurance, ask us about our TaxAbility™ research library.See more about our TaxAbility payroll tax configuration analytics here.

5 Accounts payable review. Review accounts payable and general ledger records for unreported taxable items. See Table 3 for a sample list of compensatory items that might have been paid through accounts payable.

November–December 31, 2016

6 General ledger reconciliation and review. Perform general ledger reconciliations before releasing 2016 annual information statements and returns. See Table 3 for a sample list of compensatory items that might be found in a general ledger review.

November–December 2016

7 Payroll bank reconciliation. Perform payroll bank reconciliations through December 31, 2016, including identifying outstanding checks for 2016. Ask for an early cutoff statement if necessary.

November–December 2016

8 Gross-up and tax advances. Perform all necessary gross-up calculations and impute all taxable amounts for 2016. Make tax advances when necessary (and when allowed by law) to remedy any withholding shortages resulting from imputed income. Remember that tax advances for 2016 must be repaid by employees no later than April 3, 2017.

December 31, 2016; April 3, 2017

4 | Payroll year-end checklist for 2016

Top 30 Payroll year-end tasks for 2016 Suggested deadline Your deadline Completed?

9 Check your timing for posting taxable fringes to the payroll system. To prevent late-deposit penalties and other adverse consequences, review the items on your year-end adjustment list to determine if they should have been posted to taxable wages on a periodic or other more frequent basis. Identify ways to mitigate exposures and adjust your procedures for the future accordingly.Read more about the timing for recognizing fringe benefits as paid for tax payment purposes in our special report.

December 31, 2016

10 2016 Form W-2 distribution. Determine what method will be used to distribute employee copies of the 2016 Forms W-2. If special mailing rates will be used, be certain to file all necessary documents with the U.S. Postal Service. (See T.D. 9114, 69 FR 7567, 2-18-00, for information on providing Forms W-2 to employees electronically.)

December 31, 2016

11 Incentive Stock Option (ISO) and Employee Stock Purchase Plan (ESPP) reporting. The exercise of an ISO in 2016 is required to be reported on Form 3921 and the transfer of shares under an ESPP in 2016 on Form 3922. Both forms are furnished to the employee by January 31, 2017, and filed with the IRS by February 28, 2017 (March 31, 2017, if filed electronically).

January 31, 2017– March 31, 2017

12 Electronic filing requirements. Check federal, state and local electronic tax filing requirements for 2016 and 2017. Register or make an application to remit taxes and returns electronically if the threshold for 2016 is met. (See Table 2 for the IRS application deadlines, if applicable.) Also, check federal, state and local electronic tax payment requirements for 2017 and file any required applications to meet electronic filing and payment requirements in 2017. See Table 4 and Table 5 for the current state electronic filing requirements for income and unemployment insurance tax.

November–December 2016

13 Third-party employment tax service provider verification. Work with your third-party employment tax provider to confirm that returns and information statements will be filed for all applicable jurisdictions and that the third party has reporting agent approval when necessary to file on your behalf.

December 31, 2016

14 Form W-2, box 13 pension plan indicator. Coordinate with your benefits administrator to determine when Form W-2, box 13, “Pension Plan,” should be checked for each Form W-2 recipient. See page 28 of the 2016 General Instructions for Form W-2 and W-3.

January 15, 2017

15 Form W-2 reporting of employer-provided group health benefits. Employers that filed 250 or more Forms W-2 in 2015 are required to report the aggregate cost of employer-provided group health benefits on the 2016 Form W-2, box 12, code DD. Verify that the necessary information for each employee is available for Form W-2 reporting purposes.For further details, see the IRS website.

January 16, 2017

Ernst & Young LLP’s sample 2016 payroll year-end checklist Continued

5November 2016 |

Top 30 Payroll year-end tasks for 2016 Suggested deadline Your deadline Completed?

16 Check the rules governing employer reimbursements for employee-purchased health insurance. Under the Affordable Care Act (ACA) and effective in 2014, employers are subject to substantial penalties if they reimburse employees under certain situations for their purchase of individual health insurance policies.Read more about the payroll tax and ACA requirements here.

December 2016

17 Review your independent contractors the same way a governmental auditor would. States are increasingly focused on whether employers have properly classified their workers as independent contractors, frequently asserting that they should be treated as employees.For more information about the standards that apply, read our special report here.

December 31, 2016

18 Information reporting for US nonresident alien employees. If you paid wages to US nonresident alien employees in 2016 and they claimed an exemption from federal income tax withholding under a treaty, you will be required to comply with the Form 1042-S reporting requirements. Keep in mind that Form W-2 reporting may also be required for Social Security/Medicare earnings and any wages that fall outside of those exempt from federal income tax under the treaty. Both the recipient and IRS copies of Form 1042 are due by March 15, 2017.For more information, see the IRS website.

March 15, 2017

19 2016–17 employee notices. Run the reports necessary to comply with all federal and state employee notification requirements and consider others that may be helpful.Mandatory• The special accounting rule/no federal income tax withholding

on personal-use auto — employee notices should be provided by January 31, 2017, if the special accounting rule was used in 2016 or if you will elect not to withhold federal income tax from the value of personal use of company cars in 2017.

Read more about special timing rules in our special report.• Charitable contributions — you are required to provide employees

with a report of the annual total of charitable contributions paid through payroll deduction. Consider using Form W-2, box 14, for this purpose.

• Earned Income Tax Credit (EITC) — for federal purposes, Form W-2, Copy B, includes the notice employers are required to provide employees concerning their eligibility for the Earned Income Tax Credit. Some states and localities require a separate notification (other than Form W-2, Copy B) and may also impose a different annual deadline for making it available to employees.

Watch for EITC Awareness Day in January 2017.Read more about EITC Awareness Day here.Have questions about state EITC notice requirements? Send us your questions here.

January 31, 2017 (unless otherwise noted)

6 | Payroll year-end checklist for 2016

Top 30 Payroll year-end tasks for 2016 Suggested deadline Your deadline Completed?

Suggested• Expiring Form W-4 — notify employees who claimed exempt from

federal income tax withholding in 2016 that they are required to furnish you with a 2017 Form W-4 by February 15, 2017. Verify state rules concerning withholding allowance certificates claiming exemption and include state expiring information on the same employee notice.

• COBRA premium assistance — former employees who received COBRA premium assistance payments in 2016 are required to report this information on their federal personal income tax return (Form 1040). Therefore, although it is not a requirement, giving them an annual summary of their total COBRA liability, the amount they paid and the portion representing the subsidy (65% of the liability) will reduce the number of inquiries you are likely to receive from these individuals as they prepare their 2016 federal tax returns. Remember, you report COBRA premium assistance credits on Form 941-X, not Form 941.

January 31, 2017

• 2017 withholding tax changes — notify employees of any change in the amount of tax they will pay in 2017 for Social Security, Medicare or federal, state and local income tax withholding.

• Additional Medicare Tax reminder — employees with wages in excess of $200,000 in 2016 should be reminded of their requirement to file with the IRS Form 8959, Additional Medicare Tax.

• Multi-state employees — for employees who worked in more than one state, you may want to consider providing a detail of the taxable wages that were paid within each work state. This is particularly relevant for New York employees because employers are required to report federal taxable wages (Form W-2, box 1) as state taxable wages (Form W-2, box 16).

For more information on multi-state payroll tax compliance, check out our free resources at ey.com/US/getonboard.

20 Federal unemployment insurance (FUTA) fourth-quarter deposit adjustment. If you had employees working in California or the Virgin Islands, you are subject to a FUTA credit reduction in 2016, and you are subject to higher FUTA rates in these jurisdictions. The additional FUTA tax owed is computed using the 2016 Form 940, and the additional tax payment is due by January 31, 2016.For more information on FUTA tax, read our special report here.

January 31, 2017

21 2016 tax payment reconciliation. Prepare all fourth-quarter tax reconciliation(s) prior to making the final tax payment(s) to jurisdictions for the quarter or year. (See page 24 for more information about year-end reconciliation procedures.)

Various

Ernst & Young LLP’s sample 2016 payroll year-end checklist Continued

7November 2016 |

Top 30 Payroll year-end tasks for 2016 Suggested deadline Your deadline Completed?

22 Testing Form W-2 files before filing them. Effective for tax year 2014, the Social Security Administration (SSA) will return Form W-2 files containing certain errors. For this reason, it is important that employers use SSA’s AccuWage before filing their returns. Employers using a third-party provider to handle Form W-2 files should require that the third-party provider give them a copy of the AccuWage acceptance report.Some states and localities require test files for first-time electronic filers. Be certain to comply with these requirements and consider submitting test files even if not required to do so.

January 15, 2017

23 2016 payroll processing schedule. Prepare the 2017 payroll processing and tax return filing schedule. For a list of federal holidays, see Table 1.

December 2016

24 Review 2017 employer withholding tax guides. Review IRS Circular E, Publication 15, Employer’s Tax Guide, for 2017 and any similar state and local employer tax guides and withholding tables to determine taxability and reporting changes for 2017.Make all taxability, reporting and withholding rate changes for 2017 (including the 2017 exemption amounts for IRS tax levies in Publication 1494).Test before your first live payroll in 2017.

December 15, 2016

25 2016 tax rate and wage base updates. Input 2017 Social Security, state unemployment, state disability and other similar taxable wage base and tax rate information.If using a third-party provider, test the third party’s system requirements before the first live payroll in 2017.State unemployment insurance (SUI) tax rates should be verified within the protest period. Since many states issue their 2017 rates in November and December, this is an important year-end item.Read more about the SUI rate review and protest process in our special report here.It is also important to verify in March 2017 that the correct SUI rate and wage base are reflected on the first-quarter 2017 quarterly SUI returns (generally due by May 1, 2017).Don’t forget that for 2016 and 2017, the amount of FUTA you pay may be higher because the jurisdictions where your employees work may not have repaid their federal unemployment insurance loan balances.For the 2016 employment tax rates and limits, see our annual report (to be updated in December) here.For the final 2015 employment tax rates and limits, go here.

December 31, 2016; March 31, 2017

26 Additional payroll period in 2016 or 2017. If you had an additional payroll period in 2016 or will have one in 2017 (i.e., 27 rather than 26, or 53 rather than 52), you may need to adjust your federal, state and local income tax withholding calculations. You will also need to determine how employee payroll deductions might change for the additional payroll period.

December 2016

8 | Payroll year-end checklist for 2016

Top 30 Payroll year-end tasks for 2016 Suggested deadline Your deadline Completed?

27 2017 payroll deductions. Input 2017 payroll deduction information pursuant to benefit open enrolment data or other deductions that are subject to annual revision.Stop all payroll deductions that were authorized only through 2016.Test to confirm that 2017 payroll deductions are accurately updated.

Prior to first payroll run for 2017

28 Purge 2016 expired records. Purge the active employee master file of all employees terminated in 2016.

December 31, 2016

29 Duplicate and returned Forms W-2. Instruct the mailroom on where to send returned Forms W-2 for tax year 2016. Verify that all employee requests for duplicate 2016 Forms W-2 are timely provided.

January 6, 2017; April 18, 2017 (federal due date for 2016 Forms 1040)

30 Affordable Care Act information reporting. Mandatory effective for tax year 2016, applicable large employers (ALE) are required to file Form 1095-C and transmittal Form 1094-C with the IRS. If you have 250 or more information returns during the calendar year, you must file them electronically. See the instructions for Forms 1095-C and 1094-C here.An applicable ALE is also required to give each full-time employee a copy of the Form 1095-C that is filed with the IRS. By January 31, 2017, statements must be furnished to employees on paper by mail or hand-delivered, unless the recipient affirmatively consents to receive the statement in an electronic format.Employers that are not ALEs but that sponsor self-insured group health plans must report information about employees (and their spouses and dependents) who enroll in the coverage even though they are not subject to the employer shared responsibility provisions of the ACA. Self-insured plan sponsors use Form 1095-B and transmittal Form 1094-B to meet these ACA information reporting requirements. See the instructions for Forms 1095-B and 1094-B here.ALE members that file 250 or more information returns must file them electronically through the ACA Information Returns (AIR) program.The IRS offers guidance about these ACA reporting requirements here.For guidelines on electronic filing of ACA returns, refer to Publication 5165, Guide for Electronically Filing Affordable Care Act (ACA) Information Returns.Read about ACA employer reporting challenges in our special report.

January 31, 2017 (employee statements); February 28, 2017 (IRS paper returns) or March 31, 2017 (IRS electronic returns)

Ernst & Young LLP’s sample 2016 payroll year-end checklist Continued

9November 2016 |

Table 1 — 2017 federal holidays observed

When planning your 2017 payroll processing and employment tax schedule, refer to the list of federal holidays below.

New Year’s Day Monday, January 2, 2017

Martin Luther King, Jr. Birthday Monday, January 16, 2017

Presidents Day* Monday, February 20, 2017

Emancipation Day** Monday, April 17, 2017

Memorial Day Monday, May 29, 2017

Independence Day Tuesday, July 4, 2017

Labor Day Monday, September 4, 2017

Columbus Day Monday, October 9, 2017

Veterans Day Friday, November 10, 2017

Thanksgiving Day Thursday, November 23, 2017

Christmas Day Monday, December 25, 2017

Note: Holidays that fall on Saturday are observed the previous Friday, and those that fall on Sunday are observed the following Monday. (See 5 U.S.C. 6103(b).) * Also known as Washington’s Birthday. ** See TD 9507.

10 | Payroll year-end checklist for 2016

Filing electronically for tax year 2016

For a schedule of key federal filing due dates for tax year 2016, see Table 2.

Businesses with 250 or more Forms W-2, W-2c, or IRS information returns or statements (e.g., Forms 1094, 1095, 1099, 1042-S, 8027) must file these forms electronically with the SSA or IRS.

Remember that a penalty applies when a business files returns on paper that are required to be filed electronically.

Specifications for preparing Forms W-2 electronically for tax year 2016 are found in the SSA’s Publication 42-007, Specifications for Filing Forms W-2 Electronically (EFW2).

For returns or statements filed with the IRS, specifications for electronic filing are available in IRS Publication 1220, Specifications for Filing Forms 1098, 1099, 3921, 3922, 5498, 8935 and W-2G, Electronically.

Publication 42-007 (EFW2) is available for download here.

Publication 1220 is available here.

First-time electronic filers with the SSAFiling electronically with the SSA is easy. Applications are not required. Instead, users register with the SSA by following the instructions within the Business Services Online (BSO) section here. Note that electronic Forms W-2 also may be verified using AccuWage before they are submitted.

AccuWage 2016 is available through the SSA’s website.

SSA password maintenance

The SSA suggests that users avoid the year-end rush by checking their access and updating their passwords now in preparation for the 2016 Form W-2 filing season.

Information is available here.

First-time electronic filers with the IRS• IRS requires applications for first-time filers. Unlike the SSA, the IRS Information

Reporting Branch (IRB) requires that before submitting the first electronic file, you request authorization to file electronically by submitting Form 4419, Application for Filing Information Returns Electronically (FIRE). (This requirement applies even if you have 250 or more returns and are required to file electronically.) You are not allowed to begin filing electronically until the IRS has approved your application.

Be aware that one Form 4419 may be filed for approval to electronically file Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G, but additional Forms 4419 must be filed for Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding; Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips; and Form 8955-SSA, Annual Registration Statement Identifying Separated Participants and Deferred Vested Benefits. For example, if you are filing Forms 1099, 1042 S and 8027 for the first time this year, you will need to obtain authorization to file them electronically by submitting three Forms 4419 to the IRS, one for each category of information return.

Form 4419 may be submitted anytime during the year; however, it must be submitted to the IRS at least 45 days before the due date of the return(s) for current-year processing. This allows the IRS the time necessary to process and respond to applications.

Form 4419 may be faxed to the IRS at +1 877 477 0572. In the event that computer equipment or software is not compatible with the IRS, a waiver may be requested to file returns on paper. Form 4419 may be photocopied for submission to the IRS.

Form 4419 is available on the IRS website here.

Form 4419 also may be filed online here. (Note that a revised Form 4419 must be filed on paper.)

• Sending test files to the IRS. Filers are not required to submit a test file unless they wish to participate in the Combined Federal State Filing program; however, the submission of a test file is encouraged for all new electronic filers to test hardware and software.

Test files for tax year 2016 should not be submitted to the IRS sooner than November 1, 2016, or later than March 17, 2017. Form 1042-S testing will be delayed and will begin on January 3, 2017.

Keep in mind when planning your year-end schedule that the IRS FIRE system will be down from 6 p.m. EST December 9, 2016, through January 2, 2017, for yearly updates. Additionally, the system may be down every Wednesday from 2 a.m. to 5 a.m. EST for programming updates.

For more information, see IRS Publication 1220.

11November 2016 |

Getting extensions on the SSA and IRS filing deadlineIf you will not be able to meet the filing deadline for sending your 2016 forms to the IRS or SSA (for example, you are having a computer or software issue), an automatic 30-day extension can be obtained by filing Form 8809, Application for Extension of Time to File Information Returns, with the IRS/IRB (not the SSA). Effective with tax year 2016, there is no longer an automatic extension for filing Forms W-2. Instead, only one 30-day extension for filing Form W-2 will be granted by the IRS and only if it can be shown that extenuating circumstances are preventing you from filing by the January 31 due date. The Form 8809 must be signed by the filer/transmitter or a person who is duly authorized to sign a return.

For other forms, one automatic 30-day extension is granted by filing Form 8809, and no signature is required. An additional second extension is allowed only if specifically granted by the IRS and only if you can show that extenuating circumstances are preventing you from filing by the first extended due date. The second extension request must be signed by the filer/transmitter or a person who is duly authorized to sign a return.

For the extension request to be granted, it must be postmarked, transmitted or completed online by the due date of the return.

If you are requesting an extension to file several types of forms, you may use one Form 8809, but you must file it by the earliest form due date. For instance, if you are filing a Form 8809 for a return due on March 15 and for another return due on March 31, the Form 8809 is due on March 15.

Note that extension requests for tax year 2016 returns should not be submitted prior to January 1, 2017.

Form 8809 is available on the IRS website here.

Form 8809 may be used for the following forms and can be filed electronically here.

• W-2• W-2G• 1042-S• 1094-C• 1095-C

• 1095-B • 1097• 1098• 1099• 3921

• 3922 5498• 5498-ESA• 5498-QA• 5498-SA• 8027

Obtaining a waiver from filing electronically with SSA or IRSIf, for any reason, you will not be able to submit your Forms W-2 to the SSA or information returns to the IRS electronically for tax year 2016 and you are required to do so, a one-year waiver may be granted for hardship cases. A waiver cannot be requested for more than one year at a time.

A onetime waiver from the electronic filing requirement can be obtained by filing Form 8508 with the IRS.

By obtaining a waiver from the IRS, you will not be subject to penalties for failing to meet the electronic filing requirements. A request for waiver is made by filing Form 8508, Request for Waiver from Filing Information Returns Electronically, with the IRS (not the SSA).

The IRS encourages businesses to file Form 8508 at least 45 days before the due date of the electronic filing. The IRS does not process waiver requests until January 1 of the calendar year the returns are due.

Besides Form W-2, Form 8508 is used to request waivers from filing the following returns electronically: 1042-S, 1094-C/1095-C, 1095-B, 1097-BTC, 1098, 1098-C, 1098-E, 1098-T, 1099-A, 1099-B, 1099-C, 1099-CAP, 1099-DIV, 1099-G, 1099-INT, 1099-K, 1099-LTC, 1099-MISC, 1099-OID, 1099-PATR, 1099-Q, 1099-R, 1099-S, 1099-SA, 3921, 3922, 5498, 5498-ESA, 5498-SA, 8027, W-2AS, W-2G, W-2GU, W-2PR and W-2VI.

All requests for a waiver should be sent to the following address:

Internal Revenue Service Attn: Extension of Time Coordinator 240 Murall Drive, Mail Stop 4360 Kearneysville, WV 25430

Form 8508 is available on the IRS website here.

Note that Form 8809 cannot be used to request an extension on the time to give employees or payees copies of their information returns (e.g., Form W-2, Form 1099). Instead, a letter of request must be submitted to the IRS. Extensions on the time to provide recipient copies are rare.

For more information, see IRS Publication 1220.

12 | Payroll year-end checklist for 2016

Table 2 — federal electronic filing due dates for 2016

Form Electronic system used for reporting*

Electronic filing due date and deadline to request first 30-day extension (Form 8508)*

Deadline to submit application to file electronically with IRS (Form 4419)

Deadline to submit request for waiver from filing electronically (Form 8508)**

Period for submitting test files

Form 1042-S*** IRS FIRE March 15, 2017 January 30, 2017 January 30, 2017 November 1, 2016, to March 17, 2017

Forms 1094-C, 1095-C, 1095-B, 1097, 1098, 1099, 3921, 3922 and W-2G

IRS FIRE March 31, 2017 February 14, 2017 February 14, 2017 November 1, 2016, to March 17, 2017

Form 1099-MISC, box 7 amount for nonemployee compensation (NEC)

IRS FIRE January 31, 2017 January 1, 2017** January 1, 2017* November 1, 2016, to March 17, 2017

Form 8027 IRS FIRE March 31, 2017 February 14, 2017 February 14, 2017 November 1, 2016, to March 17, 2017

Forms 5498, 5498-SA and 5498-ESA

IRS FIRE May 31, 2017 April 18, 2017 April 18, 2017 November 1, 2016, to March 17, 2017

Form W-2 SSA BSO January 31, 2017 N/A January 1, 2017** AccuWage 2016 is now available

* The SSA will begin accepting 2016 electronic Form W-2 file uploads on December 12, 2016. The IRS FIRE system will be down for upgrading from 6:00 p.m. EST December 9, 2016, through January 2, 2017, and files cannot be submitted during these times.

** The IRS does not want waiver or extension requests for tax year 2016 before January 1, 2017.

*** Form 1042-S testing will be delayed and will begin on January 3, 2017, and continue through March 17, 2017.

States are making greater use of the internet and other electronic reporting options, with a significant number changing their Form W-2 and unemployment reporting requirements for 2016 and 2017. See the state surveys in Table 4 and Table 5.

Filing electronically for tax year 2016 Continued

13November 2016 |

Table 3 — special wage payments from A to Z — sample list

The chart below is a sample list of reportable earnings that depend on data inputs outside of the payroll processing system. Creating a list of such special wage payments, including the persons or third parties responsible for providing the data, is an important element of the payroll year-end checklist. We have indicated in a column below where third parties are frequently relied on to provide information necessary to meet tax and reporting requirements.

W-2 reportable item Employer Third party401(k) — W-2 box 13 indicator

Adoption assistance

Athletic club memberships

Award — length of service

Award — recognition

Award — safety

Business expense — non-accountable

Club memberships

Credit card — non-accountable

Deferred compensation — distributions

Deferred compensation — earnings

Dependent care facility

Dependent care flexible spending

Dining hall — executive

Disability pay — CA

Disability pay — HI

Disability pay — NJ

Disability pay — NY

Disability pay — private fund

Disability pay — PR

Disability pay — state offset

Discounts — merchandise

Discounts — services

Educational assistance

Expatriate totalization

Expatriate taxes

W-2 reportable item Employer Third partyExpatriate wage update

Gift cards

Gifts — noncash

Gross-up — federal tax

Gross-up — local nonresident tax

Gross-up — state nonresident tax

Insurance — annuity

Jury duty — offset

Living expenses

Loans — forgiven

Loans — interest income

Medical debit card

Noncash award

Parking

Relocation — domestic

Relocation — foreign

Scholarships

Settlement awards

State disability offset

Stock — W-2 box 12 indicators

Stock — ESPP

Stock — ISO

Stock — nonqualified

Stock — restricted

Transit benefits

Workers’ compensation offset

14 | Payroll year-end checklist for 2016

State electronic filing of Forms W-2 and unemployment insurance returns

The following charts reflect our state survey results as of November 2016.

Note: Much of this information was obtained by Ernst & Young LLP during informal telephone, website or email surveys with state governmental agencies. Although surveys are useful in determining how government departments currently treat an issue, answers and positions derived from such surveys are not binding upon the state, cannot be cited as precedent, and may change over time and hence cannot be relied upon. Note also that many of the applicable state taxing authorities had not issued their Form W-2 electronic/magnetic media specifications for calendar year 2016 at the time of this update.

Table 4 — state Form W-2 filing method requirements*

For the full chart of state requirements, see the Payroll Compliance Handbook published by Thomson Reuters/RIA. For ordering information, call +1 800 950 1216.

(Note that changes since November 2015 are highlighted in yellow.)

State State code FIPS(1) Threshold where paper filing is not allowed

Delivery method for paperless filers

Electronic filing deadline

Alabama (AL) 01 25 or more(8)* electronic 1/31**

Alaska (AK) 02 N/A N/A N/A

Arizona (AZ) 04 250 or more(8)** magnetic media 2/28

Arkansas (AR) 05 250 or more(8) magnetic media/electronic 2/28

California (CA) 06 ** N/A N/A

Colorado (CO) 08 if Fed requires(8) electronic 2/28(11)(14)

Connecticut (CT) 09 all employers(8)* electronic 1/31**

Delaware (DE) 10 if Fed requires(8) electronic 1/31

District of Columbia (DC) 11 25 or more electronic 1/31

Florida (FL) 12 N/A N/A N/A

Georgia (GA) 13 250 or more(8)** electronic 1/31

Hawaii (HI) 15 paper only(12) N/A 2/28

Idaho (ID) 16 50 or more, or if Fed requires(8) electronic 1/31**

Illinois (IL) 17 if Fed requires(8)** electronic 2/15**

Indiana (IN)** 18 25 or more(8)** electronic 1/31**

Iowa (IA) 19 50 or more** electronic 1/31

Kansas (KS) 20 51 or more(8) electronic** 2/28

Kentucky (KY) 21 100 or more(8) magnetic media/electronic 1/31

Louisiana (LA) 22 50 or more(8) electronic 1/31

Maine (ME) 23 250 or more(8)** electronic 2/28**

Maryland (MD) 24 25 or more(8) magnetic media/electronic 1/31

Massachusetts (MA) 25 50 or more(8) electronic 2/28(11)**

Michigan (MI) 26 250 or more(8) magnetic media 2/28

Minnesota (MN) 27 10 or more(8) electronic 2/28

Mississippi (MS) 28 25 or more electronic 1/31**

Missouri (MO) 29 250 or more(8) magnetic media** 2/28**

Montana (MT) 30 optional(8) electronic 2/28

Nebraska (NE) 31 50 or more(8) electronic 2/1

15November 2016 |

State State code FIPS(1) Threshold where paper filing is not allowed

Delivery method for paperless filers

Electronic filing deadline

Nevada (NV) 32 N/A N/A N/A

New Hampshire (NH) 33 N/A N/A N/A

New Jersey (NJ) 34 optional(8) electronic 2/28

New Mexico (NM) 35 50 or more(8)** magnetic media** 2/28**

New York (NY) 36 ** N/A N/A

North Carolina (NC) 37 all employers(8)** magnetic media/electronic(13)** 1/31**

North Dakota (ND)** 38 250 or more(8) magnetic media/electronic 1/31**

Ohio (OH) 39 250 or more(8)** magnetic media(13)** 1/31**

Oklahoma (OK) 40 all employers** electronic 2/28**

Oregon (OR) 41 all employers(8) electronic 1/31

Pennsylvania (PA) 42 250 or more(8) magnetic media/electronic 1/31

Puerto Rico (PR) 43 all employers(8) electronic 1/31

Rhode Island (RI) 44 25 or more, and if Fed requires(8) magnetic media 2/28

South Carolina (SC) 45 250 or more, and if Fed requires(8) magnetic media/electronic** 1/31

South Dakota (SD) 46 N/A N/A N/A

Tennessee (TN) 47 N/A N/A N/A

Texas (TX) 48 N/A N/A N/A

Utah (UT) 49 all employers(8)** electronic 1/31

Vermont (VT) 50 25 or more** electronic 1/31

Virginia (VA) 51 all employers(8)** electronic 1/31**

Virgin Islands (VI) 52 100 or more(8) magnetic media 4/1

Washington (WA) 53 N/A N/A N/A

West Virginia (WV) 54 50 or more(8)** magnetic media/electronic 2/28

Wisconsin (WI) 55 50 or more (8)** electronic 1/31

Wyoming (WY) 56 N/A N/A N/A

Form W-2 electronic filing requirements reference chart

* Refers to number of Forms W-2. ** See state notes below. *** Mag or magnetic media refers to submission by diskette, tape cartridge, CD-ROM,

DVD and flash drive. CD, DVD and flash drive are also known as optical media. **** Electronic filing refers to internet filing or electronic transmissions such as file

transfer protocol (FTP) and file upload. (1) Some software vendors use unique codes rather than the “FIPS-5-2” (e.g., Dun &

Bradstreet (MSA)). Refer to SSA Publication No. ICN (EF-W2). (2) This option is being phased out by the state. (3) Reporting by magnetic media or electronically may be mandatory for certain

employers in the future. (4) The codes shown refer to the SSA EF-W2 specifications. Note, however, that the SSA

EF-W2 format adds the letter “R” to the front of each code. For example, the code “S” actually shows as code “RS” under the EF-W2 format. Effective for calendar year 2008, the SSA added code “RV” State Total to the specifications.

(5) USB flash drive allowed.

(6) The threshold for mandatory magnetic media or electronic filing may be reduced in the future.

(7) If 2/28 is shown, the deadline may be extended to 2/29 for leap years (i.e., tax year 2015, due February 29, 2016).

(8) Specifications are available on the state’s website. (9) Email attachment allowed. (10) DVD allowed. (11) Forms W-2 filed electronically have an extended deadline of March 31. If still allowed,

the deadline for Forms W-2 filed on magnetic media or paper usually remains at February 28.

(12) Paper W-2s only. (13) Electronic or internet reporting may be allowed in the future. (14) State law requires that the state deadline for filing Forms W-2 match federal law;

however, as of the time of this update, the revenue department has not announced that the accelerated deadline of January 31 will apply for calendar year 2016 Forms W-2.

16 | Payroll year-end checklist for 2016

State notes: Form W-2 electronic filing

Alabama. Payroll service providers must file electronically, regardless of the number of employers or employees reported. Effective for calendar year 2015, the deadline for submission of Forms W-2 is accelerated from February 28 to January 31. Regulations were also revised to provide that employers and withholding agents required to file the monthly or quarterly payments and returns electronically (those making withholding tax payments of $750 or more) are also required to file Forms W-2 electronically. This is in addition to the requirement that employers filing 25 or more Forms W-2 must file them electronically.

Arizona. Payroll service companies filing Forms W-2 and the reconciliation return on behalf of clients must file all returns electronically.

California. Forms W-2 are not filed with the state. Instead, the Form DE-9C is used to report individual personal income tax wages and withholding on a quarterly basis. Effective January 1, 2017, California employers of 10 or more employees are required to submit quarterly payroll tax returns and pay the associated payroll taxes electronically over the California Employment Development Department website. The bill requires all employers to file and pay electronically effective January 1, 2018. Penalties will apply to employers with fewer than 250 employees that fail to file and pay electronically after January 1, 2019. Employers will be allowed to apply for a one-year hardship waiver from the requirement to file and pay electronically. (A.B. 1245, signed by the governor on August 17, 2015.)

Connecticut. Effective in 2014, all employers must file all withholding returns, including Form W-2 and the annual reconciliation, electronically. Employers that have requested a waiver of the requirement to file electronically must file on CD. The Connecticut Department of Revenue Services announced in November 2015 that it suspended the electronic filing mandate for filing Form CT-W3, 2015 Connecticut Annual Reconciliation of Withholding, for those employers who issued 24 or fewer W-2s. As a result, paper Forms CT-W3 and W-2 could be filed by employers with 24 or fewer employees for tax year 2015. It was unknown at the time of this update whether the same will apply for calendar year 2016.

Georgia. Employers filing 250 or more W-2s or those required to electronically pay their Georgia withholding must file Form G-1003 and related Forms W-2 electronically. Effective for calendar years beginning after December 18, 2015, employers must file the annual withholding reconciliation return (Form G-1003) and Forms W-2 (and 1099s where Georgia income tax was withheld) by January 31.

Idaho. Effective with calendar year 2016, Idaho employers are required to submit the annual withholding tax reconciliation form and Forms W-2 to the State Tax Commission by January 31, rather than the previous due date of the last day of February. As a result, employers must file calendar year 2016 Form 967, Idaho Annual Withholding Report, and Forms W-2 (and 1099s where Idaho income tax was withheld) by January 31, 2017. This applies to both paper and electronic filers. The new law provides a five-business-day window after the new due date for an employer to correct errors in the electronic file received timely by the Tax Commission.

Illinois. Employers required to file W-2 information electronically with the SSA (and all payroll providers) must file Form W-2 information electronically with the Illinois Department of Revenue by February 15. Employers not required to file electronically with the SSA are not required to file Forms W-2 with the state, but may do so voluntarily (paper/magnetic media is not allowed).

Indiana. Indiana state and county withholding information are filed on the same transmission. Employers and those acting on behalf of employers (e.g., payroll service companies) submitting 25 or more Forms W-2 are required to file both the W-2s and annual reconciliation electronically by January 31. (H.B. 1472, Public Law 242; telephone conversation, withholding tax customer service.)

Iowa. Through calendar year 2015, Iowa did not require Forms W-2 to be filed with the VSP Annual Reconciliation. Effective with calendar year 2016, due in 2017, employers with 50 or more employees are required to submit Forms W-2 electronically with Form VSP (employers with fewer than 50 employees are not required to file Forms W-2 for calendar year 2016). Effective with calendar year 2017, due in 2018, all employers will be required to file Forms W-2 electronically with Form VSP. A written request for waiver of the requirement to file electronically may be requested until calendar year 2018, due in 2019, for cases of hardship.

Kansas. Employers that are unable to file Forms W-2 electronically using the Department of Revenue’s web application may file on CD-ROM with prior approval from the Department. The annual reconciliation, Form KW-3, must be filed electronically. According to a Department of Revenue representative, Kansas does not plan to change its Form W-2 deadline to January 31 to match federal.

Maine. Employers of 250 or more employees must file Forms W-2 and the annual reconciliation (Form W-3ME) electronically with Maine Revenue Services (MRS). Employers of fewer than 250 employees should report the amount of Maine withholding for each employee or payee on either Form 941ME, Schedule 2, or Form 941/C1-ME, Schedule 2/C1, for each quarter. If this is done, small employers are required to file only Form W-3ME (no need to include or attach Forms W-2). However, if an employer did not report the amount of Maine withholding for each employee or payee on its quarterly return for each quarter, the employer must submit Forms W-2 with its Form W-3ME. The annual reconciliation, Form W-3ME, must be filed electronically by February 28. Calendar year 2016 Forms W-2 filed electronically will be due by February 28, 2017 — this deadline will not be extended to March 31, 2017. The Department plans to introduce legislation in 2017 to change the deadline to January 31, beginning for calendar year 2017 (due in 2018). (Email response to inquiry, September 26, 2016.)

Beginning with tax periods on and after January 1, 2015, employers report quarterly withholding tax separately on Form 941ME and UI wages and contributions separately on a new Form ME UC-1. The payment of each tax is submitted separately. Although the forms and instructions are separated beginning in 2015, MRS continues to process both Form 941ME and Form ME UC-1 and employers file both forms with MRS.

Massachusetts. The state’s withholding tax law and regulations do not specify a deadline for filing Forms W-2 (Massachusetts Department of Revenue Directive 07-2 provides for the filing deadline of February 28 when filing on paper and March 31 when filing electronically). The Department generally follows federal law but had not at the time of this update announced whether the Form W-2 deadline would be accelerated to January 31 for calendar year 2016.

Mississippi. The Mississippi Department of Revenue administratively changed its Form W-2 deadline from February 28 for paper filers and March 31 for electronic filers to January 31 for both methods, effective for the filing of the calendar year 2015 Forms W-2. (Mississippi Department of Revenue website.)

Missouri. Effective January 1, 2018, legislation (H.B. 1582) changes the due date for employers to file Forms W-2 with the Missouri Department of Revenue to January 31. As a result, state copies of calendar year 2017 Forms W-2 will be due January 31, 2018. Employers with 250 employers will be required to file Forms W-2 electronically. The deadline for filing state copies of Forms W-2 remains at February 28, 2017, for the submission of calendar year 2016 Forms W-2 to the Department.

New Mexico. Employers that file a wage and contribution report, Form ES903, with the New Mexico Workforce Solutions Department, or New Mexico Form TRD-31109, Employer’s Quarterly Wage, Withholding and Workers’ Compensation Fee Report, with the Taxation and Revenue Department do not need to submit federal Forms W-2, W-2G or 1099-R. According to an agency representative, it is not known as of this update whether the agency will conform to the new federal Form W-2 deadline of January 31 for calendar year 2016.

State electronic filing of Forms W-2 and unemployment insurance returns Form W-2, continued

17November 2016 |

New York. New York wage and tax information is sent quarterly. Year-to-date fields on both WT-4-B and WT-4-A are completed for the fourth quarter only. Employers do not submit Forms W-2 to the state. All employers must file Form NYS-45, NYS-45-ATT and NYS-1 electronically over the New York Department of Taxation and Finance electronic reporting system. The associated taxes must also be paid electronically. See Publication 69 for more information.

North Carolina. Legislation (H.B. 117) enacted on September 30, 2015, requires employers to electronically file Forms W-2 with the Department of Revenue by January 31, beginning with calendar year 2015. The Department did not have its online reporting option available by January 1, 2016, so an automatic waiver was granted from the electronic filing requirement for calendar year 2015, allowing businesses to file on CD-ROM or paper by January 31, 2016. Employers were advised to be prepared to file calendar year 2016 Forms W-2 and 1099 electronically. The Department has established a webpage that provides information about the electronic filing options for Form NC-3 and Form W-2.

North Dakota. Payroll service providers must file electronically or by email attachment, regardless of the number of employers or employees reported. The Form W-2 filing deadline will be January 31, starting with the calendar year 2016 filing, due in 2017, because state law requires that North Dakota deadlines match federal deadlines.

Ohio. Effective January 1, 2015, Ohio employers are required to file all withholding tax returns except Forms W-2 electronically. Proposed regulation changes would require all Ohio employers to file Forms W-2 electronically; however, according to an agency representative, the change has not yet been promulgated and will likely not be effective for calendar year 2016. Currently, Ohio will accept state and Ohio School District W-2s on one CD. Since calendar year 2009, only employers of 250 or more employees are required to file Forms W-2 on a CD. Employers with fewer than 250 employees may voluntarily file Forms W-2 by CD. According to the representative, the agency will adopt the new federal W-2 deadline of January 31, beginning with calendar year 2016 Forms W-2 due in 2017. If Form W-2 information is not submitted on CD, the department will request Forms W-2 periodically when conducting compliance programs.

Oklahoma. Legislation enacted in early 2016 (H.B. 2775) requires that employers electronically file an annual withholding tax reconciliation return and corresponding Forms W-2 by the February 28 following the tax year. The change is effective for calendar year 2016, with the annual reconciliation and Forms W-2 due by February 28, 2017. According to an Oklahoma Tax Commission (OTC) Tax Policy and Research representative, the OTC has no plans at this time to conform to the new federal Forms W-2 deadline of January 31. (Telephone conversation, April 27, 2016.) Employers or their payroll providers will be able to use the Oklahoma Taxpayer Access Point (OkTAP) to either upload files or manually enter the information directly into the online application. The OTC will follow the same electronic file specifications as for federal Form W-2 submission. Employers will not be allowed to file Forms W-2 information by paper or magnetic media. Paper forms or magnetic media that are received will be returned and considered not filed. Prior to calendar year 2016, Oklahoma employers were not required to submit Forms W-2 or an annual reconciliation return to the OTC.

Oregon. Forms W-2 are filed electronically only; paper W-2s or other forms of media are not accepted. The Oregon Department of Revenue will match the federal accelerated deadline of January 31 effective with calendar year 2016 Forms W-2, due in 2017.

South Carolina. Effective for tax year 2016, employers required to file Forms W-2 electronically with the SSA must file Forms W-2 electronically with the South Carolina Department of Revenue over the Department’s website by January 31. (H.B. 4328.) Employers filing fewer than 250 Forms W-2 may file on CD or paper by January 31.

Utah. Effective January 1, 2016, all employers must file Form TC-941R, Utah Annual Withholding Reconciliation, and corresponding Forms W-2 (and 1099 with Utah taxes withheld) electronically by an accelerated due date of January 31, changed from February 28 for paper forms and March 31 for electronically filed forms. Failure to do so may result in penalties of up to $100 per form. (S.B. 250, signed by the governor on March 30, 2015.)

Vermont. Payroll service providers must file electronically, regardless of the number of employers or employees reported.

Virginia. All withholding tax returns, including Forms W-2, must be filed electronically by January 31. Paper returns are not allowed.

West Virginia. All employers, including those that file the Forms W-2 electronically with the West Virginia State Tax Department, must also file Form WV/IT-103, Annual Reconciliation of West Virginia Income Tax Withheld. Failure to submit Form WV/IT-103 each year may result in the denial of Letters of Good Standing and prevent potential refund requests from being processed. Also, West Virginia law allows for a penalty of $25 per employee for failure to timely file this information.

Wisconsin. Businesses or individuals making payments that must be reported on federal Forms W 2, 1099 R or 1099 MISC must also submit these forms to the Department regardless of whether Wisconsin tax has been withheld.

18 | Payroll year-end checklist for 2016

Table 5 — state unemployment insurance filing method requirements*

(Note that changes since November 2015 are highlighted in yellow)

For the full chart of state requirements, see the Payroll Compliance Handbook published by Thomson Reuters/RIA. For ordering information, call +1 800 950 1216.

State State code FIPS(1) Threshold for mandatory magnetic media/electronic reporting**

Delivery method required for non-paper filers

Alabama (AL)(18) 01 all employers(7)(19)* electronic

Alaska (AK)(18) 02 if 50 or more(19)* electronic

Arizona (AZ) 04 optional(10)(19) magnetic media/electronic(3)

Arkansas (AR)(18) 05 if 250 or more(9)(19) magnetic media/electronic

California (CA)(12)(13) 06 if 10 or more(2)(7)(10)(19)* electronic

Colorado (CO) 08 optional(3)(17) electronic

Connecticut (CT)(18) 09 all employers(2)(7)(12)(19) electronic

Delaware (DE) 10 optional(2)(9)(19) magnetic media/electronic

District of Columbia (DC) 11 if 5 or more(2)* electronic

Florida (FL) 12 if 10 or more(7)(10)(16) electronic

Georgia (GA) 13 if 100 or more(2)(7)(9)(12)(18) magnetic media/electronic

Hawaii (HI) 15 optional(2)(3)(7) magnetic media/electronic

Idaho (ID) 16 all employers(19) electronic

Illinois (IL)(18) 17 if 25 or more(2)(7)(12)(19)* electronic

Indiana (IN) 18 optional(2)(9)(12)(17)(19) magnetic media/electronic

Iowa (IA) 19 all employers(2)(19) electronic

Kansas (KS) 20 if 50 or more(7) electronic

Kentucky (KY) 21 if 10 or more(7)(12) electronic

Louisiana (LA) 22 all employers(2)(19)* electronic

Maine (ME) 23 all employers(12)(19)* electronic

Maryland (MD) 24 all employers(12)(19)* electronic

Massachusetts (MA) 25 all employers(19) electronic

Michigan (MI)(13)(18) 26 all employers(19) electronic

Minnesota (MN)(18) 27 all employers electronic

Mississippi (MS) 28 if 250 or more(19) magnetic media/electronic

Missouri (MO)(18) 29 if 250 or more(2)(9)(12)(19) magnetic media/electronic

Montana (MT)(18) 30 optional(2)(7)(9)(10)(12)(17)(19) magnetic media/electronic

Nebraska (NE)(18) 31 if annual payroll exceeds $100,000 in either of previous two years(19)

electronic

Nevada (NV)(18) 32 optional(3)(7)(12)(19)* electronic

New Hampshire (NH)(18) 33 if 50 or more(2)(7)(19) magnetic media/electronic

New Jersey (NJ)(13)* 34 all employers(7)(19) electronic

State electronic filing of Forms W-2 and unemployment insurance returns

19November 2016 |

State State code FIPS(1) Threshold for mandatory magnetic media/electronic reporting**

Delivery method required for non-paper filers

New Mexico (NM)(13) 35 all employers(7)(19) electronic

New York (NY)(18)(13)* 36 all employers(2)(7)(19)* electronic

North Carolina (NC)(18) 37 if 25 or more(9)(12)(19) magnetic media/electronic

North Dakota (ND) 38 if 25 or more(2)(7)(9)(12)(19) magnetic media/electronic

Ohio (OH)(18) 39 optional(2)(7)(9)(17)(19)* magnetic media/electronic

Oklahoma (OK) 40 all employers(2)(19)* electronic

Oregon (OR)(13)* 41 optional(2)(19) electronic

Pennsylvania (PA) 42 all employers(2)(7)(10)(19) electronic

Rhode Island (RI) 44 if 25 or more(2)(7)(9)(10)* magnetic media/electronic

South Carolina (SC) 45 if 100 or more(2)(16)(19) electronic(3)

South Dakota (SD) 46 optional(2)(7)(9)(19) magnetic media/electronic

Tennessee (TN) 47 if 10 or more(2)(9)(19)* magnetic media/electronic(3)

Texas (TX) 48 all employers(7)(9)(12)(19) electronic

Utah (UT) 49 if 250 or more(4)(7)(9)(16)(19) magnetic media/electronic

Vermont (VT) 50 all employers(7)(19) electronic

Virginia (VA) 51 if 100 or more(19) electronic

Washington (WA)(18) 53 all employers(2)(19)* electronic

West Virginia (WV) 54 all employers(19)* magnetic media/electronic

Wisconsin (WI) 55 if 25 or more(19)* electronic

Wyoming (WY)(13) 56 optional(2)(19) magnetic media/electronic

Unemployment insurance electronic reporting reference chart * See state notes below. ** Magnetic media refers to submission by diskette, tape cartridge, CD-ROM, DVD and

flash drive. CD, DVD and flash drive are also known as optical media.

Electronic filing refers to internet filing or electronic transmissions such as file transfer protocol (FTP) and file upload.

(1) Some software vendors use unique state codes rather than the “FIPS 5-2” (e.g., Dun & Bradstreet (MSA)). Reference SSA Publication No. ICN (EFW2).

(2) A test file is required or strongly encouraged prior to the first actual filing. (3) State plans to eliminate paper reporting altogether in the future. (4) The threshold may be reduced in the future. (5) Email submission allowed. (6) The National Association of State Workforce Agencies (NASWA) (formerly the

Interstate Conference of Employment Security Agencies (ICESA)) publishes a standard format based on the SSA format and intended to ease the reporting of employers in multiple states.

(7) An application or electronic registration to begin reporting magnetically or electronically is required prior to the first actual filing.

(8) State PC software is available. (9) A transmittal must accompany the magnetic media. (10) For payroll service companies and agents, the application to begin reporting by

magnetic media or electronically must include a list of client employers. (11) DVD also allowed. (12) Both the contribution and wage reports may or must be filed by magnetic media or

electronically. (13) Combined payroll tax form is used. (14) USB flash drive also allowed. (15) The state plans to phase this option out. (16) Payroll service companies that file quarterly tax reports on behalf of 100 or more

employers during any calendar quarter must file magnetically or electronically. (17) The state plans to make magnetic media or electronic reporting mandatory in

the future. (18) Payroll services must submit a list of clients. (19) Format specifications are available through the internet. (20) Electronic or internet reporting may be allowed in the future.

20 | Payroll year-end checklist for 2016

State notes: unemployment insurance electronic filing

Alabama. Employers of fewer than five employees may file by phone.

Alaska. Agents filing on behalf of employers must file electronically, regardless of the number of employees.

California. Effective January 1, 2017, California employers of 10 or more employees are required to submit quarterly payroll tax returns and pay the associated payroll taxes electronically over the California Employment Development Department website. The bill requires all employers to file and pay electronically effective January 1, 2018. Penalties will apply to employers with fewer than 250 employees that fail to file and pay electronically after January 1, 2019. Employers will be allowed to apply for a one-year hardship waiver from the requirement to file and pay electronically. (A.B. 1245, signed by the governor on August 17, 2015.)

District of Columbia. Effective fourth quarter 2014, employers of five or more employees are administratively required to report electronically over the District’s electronic reporting system. Effective first quarter 2015, employers must report the number of hours an employee worked as part of the quarterly wage report. According to a senior Department representative, until legislation is passed to update DC Code §51-104(b)(2) to reduce the threshold from 250 or more employees to 5 or more employees, the District is unable to penalize employers of fewer than 250 employees for failure to report electronically or supply the number of hours.

Illinois. Effective July 1, 2014, employers with 25 or more employers are required to submit the employer wage report (Form UI-40) electronically on a monthly basis, at the end of the month following the reporting period, in addition to being required file the quarterly contribution and wage report electronically. (PA 097-0689, Section 105.) Rule changes allow the Department of Employment Security to remove penalties and interest that employers incurred as a result of confusion over the electronic reporting requirement’s implementation schedule and waive up to the first two quarters’ worth of penalties, along with any related interest, for late monthly reports, as long as the employer timely submitted quarterly reports. Another rule change applies the electronic/monthly reporting requirement on a state fiscal year basis rather than a calendar year basis (e.g., if an employer’s 2014 headcount equaled or exceeded 25, the employer was required to report electronically/monthly for the period from July 1, 2015, through June 30, 2016).

Louisiana. Effective January 1, 2016, employers are required to supply information on two additional data elements when electronically filing the quarterly unemployment wage report — the employee’s hourly rate of pay and the employee’s occupational code or job title, per recently updated specifications.

Maine. Beginning with tax periods on and after January 1, 2015, employers report UI wages and contributions separately on a new Form ME UC-1 and withholding tax on Form 941ME. The payment of each tax is submitted separately. Although the forms and instructions are separated beginning in 2015, Maine Revenue Services (MRS) continues to process both Form 941ME and new Form ME UC-1 and employers file both forms with MRS.

Maryland. Effective first quarter 2016 (returns due April 30, 2016), all Maryland employers are required to file the Form DLLR/DUI 15, Unemployment Insurance Quarterly Contribution and Employment Report, electronically. The Maryland Department of Labor, Licensing and Regulation will no longer mail paper returns to employers, and magnetic media/email submission is no longer allowed. Previously, employers of 100 or more employees were required to file electronically or by magnetic media.

Nevada. If the quarterly tax due is $10,000 or more, the payment must be made electronically. This also applies to authorized agents and submitters who file for multiple employers. If the total aggregate amount of contributions is $10,000 or more, Nevada law requires the payment to be made electronically by either ACH Credit or ACH Debit.

New York. Employers must report if dependent health benefits are available to employees. The reporting requirement applies only at the employer level and is not reported for each individual employee on the wage report. A checkbox is included on Form NYS-45 for this purpose. (Assembly Bill No. A08952, Chapter 182 of the Laws of 2010.) Effective first quarter 2015, all employers must file Form NYS-45, NYS-45-ATT and NYS-1 electronically over the New York Department of Taxation and Finance electronic reporting system. The associated taxes must also be paid electronically.

Ohio. According to an agency representative, a rule change is in the works that would by 2018 mandate the quarterly contribution and wage report be filed electronically. In 2017, CD filers will be asked to voluntarily change to file upload.

Oklahoma. Effective January 1, 2017, the Oklahoma Employment Security Commission announced it will enforce the requirement that employers file electronically over the agency’s website. Any report submitted by paper after January 1, 2017, will be returned unprocessed to the employer (unless the employer was granted a waiver from filing electronically). The employer will be required to electronically refile the return. Late filing penalties will be assessed if the employer fails to file the report electronically within the allotted time frame to avoid such penalties.

Oregon. Effective first quarter 2016, employers are required to report in new Column 6 of Form 132, Unemployment Insurance Employee Detail Report, the income tax withheld from each employee for tax fraud prevention purposes. At the time of this update, there were no penalties assessed for failure to do so, but future legislation establishing enforcement provisions is possible.

Rhode Island. Payroll service providers that provide payroll services to 20 or more clients must file Quarterly Tax and Wage Reports (DET-TX-17) for their clients electronically.

Tennessee. Effective January 1, 2016, Tennessee employers with 10 or more employees must file their quarterly SUI contribution and wage report electronically, a decrease from the former threshold of 250. Effective July 1, 2016, employers of 10 to 249 employees that fail to comply with the electronic reporting requirement may be assessed a penalty of $50 per month, up to a maximum of $500 until they comply. According to a Department of Labor and Workforce Development representative, employers will also continue to have the option to report on CD, DVD or diskette. (S.B. 102, signed by the governor on April 10, 2015.)

Washington. All employers are required to file electronically. Paper or magnetic media filing is not allowed ($25 penalty can be assessed). However, according to the unemployment agency’s website and an email response to inquiry, the agency will not administratively penalize an employer for filing paper returns but will strongly urge the employer to convert to electronic reporting.

West Virginia. Effective first quarter 2016, paper returns are no longer automatically mailed to employers. Employers are strongly encouraged to file electronically or on CD. Employers wishing to continue to file on paper must request a waiver from electronic reporting.

Wisconsin. Agents who prepare reports on behalf of employers must file their contribution and wage reports electronically.

State electronic filing of Forms W-2 and unemployment insurance returns Unemployment insurance, continued

21November 2016 |

22 | Payroll year-end checklist for 2016

Year-end employment tax reporting compliance

Particularly for the multi-state employer, preparing for annual employment tax reporting is a multi-step process that includes these steps:

1. Create a list of jurisdictions requiring returns and information statements (e.g., Forms W-2, 1099, 1042-S)Whether employment taxes are processed in-house or by a third-party provider, a list should be created of the jurisdictions and the returns and information statements that each requires. In our experience reviewing employment tax processes, neglecting to report to all jurisdictions (including those outside the US, where applicable) is one of the most common errors that multi-jurisdictional employers make. To make your list of taxing jurisdictions as accurate and comprehensive as possible, a report from the employee master file should be created of both the work and resident states and localities that have been established for each employee. If work state and locality information is also carried in the timekeeping system (i.e., employees typically work in multiple jurisdictions within a single payroll period), a similar report should be run from this source. If you are uncertain of a jurisdiction’s withholding, employment tax and reporting requirements, check with the state and local taxing authorities, your employer’s accounting firm or other qualified employment tax consultant.

2. Verify the form and format of returns and information statementsEach jurisdiction imposes different reporting requirements. Some jurisdictions, for instance, require that Forms W-2, annual state income tax reconciliations or state unemployment insurance returns be filed magnetically or electronically if the employees or forms exceed a certain number. Under the federal requirements, for instance, Forms W-2 (Forms W-2c) in excess of 249 in the calendar year must be filed electronically. (State rules vary. See Table 4 and Table 5 for our 2016 survey of state electronic Form W-2 and state unemployment insurance filing requirements.)

If the employer is relying on a third party to file its employment tax returns and information statements for the first time, care must be taken that all the necessary steps have been completed to establish the third party as a reporting agent. For example, you and the third party must have obtained a User ID and PIN where required, as well as any other information necessary to meet the reporting requirements and you must have confirmed that file submissions were posted accurately. (Note that employers using a third-party provider can obtain a User ID and PIN to verify Form W-2 transmissions through the SSA’s BSO. Go here for more information.)

Filing format and record layout specifications may also change from year to year and should be reviewed carefully before processing year-end returns and information statements.

Reference these publications for tax year 2016:

• SSA Publication 42-007 (EFW2) here

• IRS Publication 1220, Specifications for Filing Form 1097, 1098, 1099, 3921, 3922, 5498, 8935, and W2-G Electronically, here

• IRS Publication 1187, Specifications for Filing Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, Electronically, here

• IRS Publication 1239, Specifications for Filing Form 8027, Employers Annual Information Return of Tip Income and Allocated Tips, Electronically, here

• For guidelines on electronic filing of Affordable Care Act information returns, refer to Publication 5165, Guide for Electronically Filing Affordable Care Act (ACA) Information Returns

3. Verify that all laser-printed forms were approved by the SSAIf you plan to use laser-printed Forms W-2/W-2c from a third-party source (e.g., software or service provider), ask the supplier for a copy of its dated approval notice from the SSA. For more information, see:

IRS Publication 1141, General Rules and Specifications for Substitute Forms W-2 and W-3 (Rev. Proc. 2015-51), here

4. Test magnetic media and electronic filesParticularly when a jurisdiction’s form or format for reporting has changed, it is prudent to perform tests validating that your files match the jurisdiction’s reporting requirements. Discovering errors while printing or filing the actual returns and information statements not only creates delays in filing but also can expose you to penalties and other additional costs. For Form W-2 reporting purposes, the SSA makes software available that allows you to edit Form W-2 files before they are submitted electronically.

AccuWage 2015 is available through the SSA’s website here.

23November 2016 |

5. Verify taxability complianceTaxability compliance can be verified by printing reports from the payroll system’s tax configuration tables. These configuration tables carry the information necessary for including and excluding various wage payments and fringe benefits from taxable wages and the tax computation. Verifying that amounts are reported on the appropriate lines or boxes of returns or statements and that the correct codes are used, where applicable, is a vital element of year-end compliance testing.

Sample configuration tables are shown below.

2016 sample federal employment tax configuration table — pay codes

Benefit Federal income tax (Form W-2, box 1)

Social Security wages (Form W-2, box 3)

Medicare wages (Form W-2, box 5)

Form W-2, box 12

Federal unemployment insurance taxable (FUTA, Form 940)

Business expense accountable plan

No No No N/A No

Dependent care assistance

Yes — excess over $5,000

Yes — excess over $5,000

Yes — excess over $5,000

N/A, but report in box 10

Yes — excess over $5,000

Educational assistance, job-related

No No No N/A No

Educational assistance, non-job-related

Yes — excess over $5,250

Yes — excess over $5,250

Yes — excess over $5,250

N/A Yes — excess over $5,250

Sample federal employment tax configuration table — deduction codes

Benefit Federal income tax (Form W-2, box 1)

Social Security wages (Form W-2, box 3)

Medicare wages (Form W-2, box 5)

Form W-2, box 12

Federal unemployment insurance taxable (FUTA, Form 940)

Section 125, Dependent care assistance pretax

Reduce up to $5,000

Reduce up to $5,000

Reduce up to $5,000

N/A, but report in box 10

Reduce up to $5,000

Section 125, Health insurance premium pretax

Reduce 100% Reduce 100% Reduce 100% Considered in arriving at amount in code DD

Reduce 100%

401(k) pretax contribution

Reduce up to $18,000

No change No change Code D No change

24 | Payroll year-end checklist for 2016

6. ReconciliationWhether your payroll is processed in-house or by a third-party provider, reconciliation is vital to accuracy and internal control. Keep in mind that reconciling does not necessarily mean that there are no differences or adjustments but rather that differences and adjustments have a reasonable explanation and are well-documented.

There are four primary types of year-end reconciliation:

• Wage and tax

The wage and tax reconciliation should include a logical and chronological reconciliation of federal, state and local wage and tax information:

• Chronological. The purpose of a chronological reconciliation is to verify that wage and tax information has properly accumulated from each payroll period to the quarter and, finally, to the annual totals.

• Logical. The purpose of the logical reconciliation is to compare the wage and tax information of different jurisdictions to confirm that any differences in amounts are logically explained by variations in the tax rules. For instance, employers that provide taxable excess group-term life insurance coverage should have a difference between FICA and federal unemployment covered wages (taxable group-term life is excluded from federal unemployment insurance wages but is included in FICA wages). A similar reconciliation should be performed that compares federal wages with the taxable wages reported to each state and local taxing jurisdiction.

• Bank statement

• A bank reconciliation is vital to verifying that checks, including voids and stop payments, were properly posted to the payroll system throughout the year and that outstanding checks are investigated and properly dealt with (keeping in mind the unclaimed-property rules of the applicable state) prior to preparing the 2014 returns and information statements. Failure to perform a bank reconciliation prior to filing employment tax returns and issuing information statements exposes an employer to the risk of reporting incorrect wages and paying or withholding an incorrect amount of tax. These errors can result in time-consuming corrections to Forms W-2 and other information returns and statements, creating a potential for interest and penalty assessments.

• Accounts payable and third-party payments

The payroll system is not the only door through which wages and fringe benefits enter. All too frequently, expense reports and other business expenses, such as payments made on behalf of employees for educational or relocation expenses, are initially entered into the accounts payable system. Absent an automated interface between accounts payable and payroll, which is rare in today’s technological environment, a recurring analysis should be made of accounts payable transactions to pinpoint items potentially reportable or subject to employment tax.

An accounts payable reconciliation of this type includes, for example, a review of expense reports and petty cash or impressed funds; the identification of non-accountable business expense reimbursements and taxable payments made to individual employees or former employees, relocation providers, stockbrokers, life insurance companies, and airlines and travel agents; and an accounting of business and personal use of company vehicles, including cars and airplanes.

See Table 3 for sample list of benefits and other compensation that might be paid through accounts payable or by a third-party service provider.

• General ledger

A general ledger reconciliation is routinely necessary to help ensure that the employer’s financial statements accurately reflect the payroll transactions of the business. However, at year-end, the general ledger reconciliation is also vital to confirming that wages are reported correctly and tax liabilities and payments are stated accurately. General ledger totals of wages, tax expenses and tax liabilities should correspond to the amounts reported to each of the taxing jurisdictions.

See Table 3 for a sample list of special wage payments and other compensation that might be paid through accounts payable or by a third-party service provider.

Year-end employment tax reporting compliance Continued

25November 2016 |

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